Dollar Gains Most Since January on U.S. Economic Growth

Aug. 2 (Bloomberg) -- The dollar rose the most in six
months versus a basket of peers after economic reports showed
U.S. growth rebounded, boosting bets the Federal Reserve is on
pace to raise interest rates next year.

The greenback touched an eight-month high against the euro
amid slowing inflation in Germany and the euro area. Emerging-market currencies declined as Standard & Poor’s deemed Argentina
in “selective default,” and the U.S. and European Union
imposed further sanctions on Russia for its support of rebels in
eastern Ukraine. The European Central Bank is forecast to hold
its main rate at a record low when it meets next week.

“The dollar has been performing very well in recent weeks
on the back of stronger data,” Robert Lynch, a currency
strategist at HSBC Holdings Plc in New York, said yesterday in a
telephone interview. “I don’t see anything in the data that
suggests deviation from the expectation the Fed will raise rates
in the middle of 2015.”

HSBC forecasts the dollar to strengthen against the pound,
with the next target past $1.6800.

The Bloomberg Dollar Spot Index added 0.7 percent this week
in New York, the most since the period ending Jan. 17. It
touched 1,023.42, the highest since March 20.

The euro was little changed on the week at $1.3427 after
touching $1.3367, its lowest level since Nov. 12. The yen fell
against the U.S. currency for a third week, losing 0.8 percent
to 102.61. It fell 0.7 percent to 137.78 per euro. The pound
fell a fourth week, declining 0.9 percent to $1.6821.

Argentina Debt

The dollar rose against all except three of 24 emerging-market currencies tracked by Bloomberg this week. The Indonesian
rupiah was the worst performer, losing 1.9 percent, while
Russia’s ruble dropped 1.8 percent. China’s yuan led gainers,
adding 0.2 percent.

Argentina’s peso dropped for a 14th week after the nation
missed a $539 million interest payment amid wrangling over a
court order to pay several hedge funds that hold debt from the
country’s 2001 default. Fitch Ratings lowered Argentina’s
foreign debt rating on July 31, following S&P’s decision to do
the same a day earlier. President Cristina Fernandez de Kirchner
denies the country defaulted.

The peso fell 0.7 percent on the week, extending the
longest losing streak since it depreciated for 100 consecutive
weeks ending Jan. 31.

European Inflation

Russia’s ruble dropped for a third week as state-owned
banks and a shipbuilder were added to the list of entities that
face restrictions on business with the U.S. and European Union.
The currency slid 1.8 percent on the week to 35.7893 per dollar.

The euro touched to an eight-month low against the
greenback as inflation unexpectedly slowed in the 18 nations
that share the currency last month, with a consumer price index
slipping to 0.4 percent in July compared with 0.5 percent in
June. That’s the lowest reading since 2009. Economists had
forecast the rate to hold at 0.5 percent. Price increases in
Germany, the region’s largest economy, also slowed, moderating
to 0.8 percent in July from 1 percent in June.

European Central Bank President Mario Draghi cut interest
rates to an all-time low on June 5 as policy makers seek to lift
inflation toward their goal of just under 2 percent. The euro
has fallen 1.x percent against the dollar since then. Policy
makers meet Aug. 7.

Net Shorts

Futures traders’ bets that the euro will decline against
the U.S. dollar rose to the biggest since August 2012, figures
from the Washington-based Commodity Futures Trading Commission
show.

The difference in the number of wagers by hedge funds and
other large speculators on an depreciation in the euro compared
with those on a rise -- net shorts -- was 108,075 on July 29,
compared with 88,823 a week earlier.

The Fed trimmed stimulatory bond purchases to $25 billion
this week in its sixth consecutive $10 billion cut and is on
track to end the purchases in October. Interest rates will
probably stay low for a “considerable time” after the program
finishes, the Federal Open Market Committee reiterated in its
statement July 30.

Traders see a 58 percent chance Fed will raise its rate
target to at least 0.5 percent by July 2015, up from 54 percent
on July 1, based on futures contracts.

Payrolls Slack

Slack remains in the labor market, according to the FOMC’s
statement. Employers added fewer jobs than forecast in July,
boosting payrolls by 209,000, less than the 230,000 predicted by
analysts surveyed before the release yesterday. The jobless rate
increased to 6.2 percent, from 6.1 percent a month earlier.

“The expectations going into the report were pretty
inflated,” Mark McCormick, a foreign-exchange strategist at
Credit Agricole SA in New York, said of the payrolls data
yesterday. “The rally in the dollar got a little bit ahead of
itself.”

Gross domestic product rebounded in the second quarter,
data showed this week, expanding at a 4 percent annualized rate
after shrinking 2.1 percent from January through March. The
median forecast of 80 economists surveyed by Bloomberg called
for a 3 percent advance.

Consumer spending rose by the most in three months in June.
Household purchases, which account for about 70 percent of the
economy, climbed 0.4 percent after a 0.3 percent gain in May
that was larger than previously estimated.

“This week has really set the tone for the summer,” said
Michael Woolfolk, a global-markets strategist at Bank of New
York Mellon in New York. “Investors should look to sell the
euro and the yen” against the dollar.

The dollar was the best performer this week among 10
developed-market currencies tracked by Bloomberg Correlation-Weighted Currency Indexes, adding 0.6 percent. The euro rose
0.57 percent and the yen dropped 0.2 percent.